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Congress Approves Paycheck Protection Program Loan Reform

Posted by Ann Bond, CPA on Jun 4, 2020 3:27:26 PM

Congress has approved legislation that will triple the time businesses have to use emergency loans provided through the Payroll Protection Program (PPP). The Paycheck Protection Program Flexibility Act offers an extension of the original eight-week covered period to 24 weeks for borrowers to use the loan proceeds while retaining the loan forgiveness provisions provided under the PPP.  A borrower may forgo the extension and maintain the original 8-week covered period. The legislation was approved just after the eight-week window for the first loan recipients began to expire on May 29, 2020.

The legislation also changes the percentage of funds that must be spent on payroll to be eligible for loan forgiveness. Originally, the 75/25 rule required 75% of the forgivable expense amount  to be used on eligible payroll costs. That ratio has changed to 60/40.  Now 60% of the loan amount must be spent on eligible payroll costs, which enables business owners to use 40% of their funds on overhead expenses.  As an example, assume the loan amount was $100,000, and $50,000 was spent on eligible payroll costs.  Prior to the passage of the recent bill, the total amount eligible for forgiveness would be $66,667 (as payroll had to be 75% of the forgiveness amount).  Now in order to qualify for any forgiveness, the amount that must be spent on payroll is $60,000 (60% of the loan amount), and the balance of the loan can be used for eligible non-payroll costs. If 60% of the loan amount is not spent on eligible payroll costs, none of the loan will be forgiven.

Other highlights include:

  • Borrowers now have 24 weeks to restore their workforce and wage levels to pre-pandemic levels to be eligible for full loan forgiveness. The previous deadline of June 30, 2020, has been extended to December 31, 2020.
  • Two additional exceptions allow borrowers to be eligible for full loan forgiveness even when they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good-faith offers to be rehired at the same hours and wage as before the pandemic. Two new exceptions include employers who either could not find qualified employees for open positions or who were prevented from restoring business operations to February 15, 2020 levels due to COVID-19 related operating restrictions.
  • Business owners with PPP loans can now delay payroll taxes, which was originally prohibited.
  • New borrowers will have five years to repay the loan instead of two, provided the lender agrees. The interest rate remains at 1%.
  • If a borrower fails to apply for forgiveness of a loan within ten months after the last day of the covered period, the borrower will be expected to make payments of principal, interest, and fees beginning on the first day after the ten months.

The PPP was originally funded at $349 billion in April, but funds were depleted within two weeks. Although Congress approved another $310 billion in funding, the program has had complications, such as when large, publicly traded companies were given loans while small businesses had difficulty either with obtaining the loans or what some viewed as rigid loan forgiveness terms.

As of June 1, the Small Business Administration (SBA) reported that 4.5 million borrowers had received approvals for loans totaling $510.6 billion.

The SBA and Treasury are expected to provide guidance to small businesses on loan forgiveness qualification under the new law.

Goldin Peiser & Peiser is assisting business owners with the PPP loan application. Our CARE Team can help ensure you are receiving the maximum amount of loan forgiveness by complying with program requirements.

COVID-19 Resources and Planning Services

There are many options to consider in navigating the next 30 to 90 days. You need a plan – a business continuity plan. If you need experts to help your business develop your plan or revise the one you have in place, our COVID-19 Business Advisory and Planning Services Group is ready to assist. For timely and important updates, visit GPP’s COVID-19 Business Assistance and Resource Center.

For immediate questions, email CARETEAM@GPPcpa.com

Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.

Topics: COVID-19, SBA Loans, PPP Loans